The Myth of Democratic Failure: Why Political Institutions are Efficient.
Yoon, Yong J.
By eliminating Plato, economists have already achieved a lot in
improving our understanding of political process. Buchanan and Tullock
initiated the interpretation of political process as exchange of
interests (and values) rather than search for truth. In this book
Wittman attempts to remove David Hume. Wittman asserts that democratic
polity is as efficient as the economic market and proposes an efficiency
hypothesis of political market. The author makes interesting arguments
that deserve attention, but has failed to solidify the issue.
First, the author does not recognize the fundamental difference
between market and political processes. A market involves bilateral
(unanimous) exchanges; a political process involves complex exchanges. A
market for political services involves the question of legitimacy as
well as efficiency.
Now, for the sake of argument, let me accept his assertion and
examine the implications. A democratic political market is efficient.
Thus all we can do is to improve the management. This leads to a
question of importance in political philosophy. David Hume asks whether
there is any essential difference between one form of government and
another - is whatever is best administered the best? Hume's
conclusion is that the constitution matters. In this respect,
Wittman's argument gives in to an evolutionary theory of political
system. Efficiency can be discussed within the given framework of
constitutions that restricts political processes. Wittman's
efficiency hypothesis belongs in this category.
To justify his efficiency hypothesis, Wittman examines factors of
market failure factor or the players in the political market: voters,
bureaucrats and interest groups. Wittman emphasizes the role of
candidates. Down's "Rational Voter Ignorance" is
discussed in detail. Nobody collects the necessary information in Downs.
In Wittman all necessary information is collected by the voters or
provided by candidates. This argument has merit by introducing
endogeneity in political processes; Wittman considers the supply side of
political services (candidates) as well as the demand side (voters).
But Wittman's argument leads to another extreme regarding the
opportunism of elected officials. He argues that self interest leads to
efficiency. He argument is largely based on the politicians'
concern about reputation. Again, political markets work differently from
economic markets. As Hume says, "Honor is a great check upon
mankind: But when a considerable body of men act together, this check
is, in a great measure, removed: since a man is sure to be approved of
by his own party, for what promotes the common interest; and he soon
learns to despise the clamors or adversaries. . . . The whole senate
acts as if it contained not one member who had any regard to public
interest and liberty." Wittman's argument would be more
convincing if he could convince Hume first.
Wittman gives insightful interpretation of cognitive psychology in
Chapter 5. The collection of anomalies discovered by cognitive
psychologists is not a basis for a coherent theory. Wittman's
argument is correct if voters in the political market try to learn from
others who are successful. Sifting is an inexpensive process of
acquiring information. But there are findings in psychology that can
contribute to economics and political process. Works by Ainslie on
preference change provides examples.
Wittman applies his efficiency hypothesis to several economic issues.
His arguments are not convincing as I demonstrate with the following
examples.
(a): Based on the Ricardian argument, he asserts that federal debt is
efficient. In his example land is the only tax base. If debt is issued
for example, in the amount of one million dollars, then the value of
land drops by the exact amount of one million dollars, The value of land
falls by optimally discounting the future, and the current generation
bears the full consequence instead of delivering the burden to the
future generation. This argument ignores the fact that current taxpayers
do not know their tax base or rates in the future. Thus, Ricardian
equivalence holds only if debt is determined concurrently with the plans
for future bases and rates for each individual.
(b): In the voting model (Chapter 11 and 12) Wittman argues that
candidates will choose a position (allocation) from the Pareto efficient
set. But Wittman and Baron further argue and predict a unique position.
Their result relies on the assumption that voting can be repeated;
expecting this, all voters will agree on the equal division of the pie.
One can apply Rubinstein's perfect equilibrium concept to derive
the result. But this exercise misses an important aspect of voting.
Voting is certainly a kind of exchange, but since the vote outcome
assumes legitimacy, it requires additional costs to repeat. Thus, a
successful coalition will enjoy the outcome at the expense of the
minority.
(c): To assert the efficiency of regulation, Wittman discusses a
farmers' coalition being blocked by trade restriction of cheap farm
equipment, etc. Pressure groups and interest groups are efficient to a
certain extent because they provide information for the legislators and
reduce transaction costs. His point is that no interest group can
monopolize protective regulation. But this interest group politics will
generate an umbrella of protective regulations which will harm each and
all. Wittman's efficiency hypothesis is no answer to the problem
pointed out by Hayek, Stigler and Buchanan.
Wittman claims he is proposing his efficiency hypothesis against the
conservative economists who proclaim political market failure. Does he
consider Hayek as a conservative? Hayek definitely falls in his category
of conservative. The book registers the lingering doubts and allows us
to see the potentials and the limits of the efficiency of political
process. But some fundamental points are missing because the
constitutional failures pointed out by Hayek and Buchanan are not
discussed. Wittman's criticism of what he calls conservative
schools is too weak in contrast to his exaggerated silhouette.
Yong J. Yoon Public Service Commission, Washington, D.C.